TY - JOUR
AU - Bebchuk,Lucian
AU - Grinstein,Yaniv
TI - Firm Expansion and CEO Pay
JF - National Bureau of Economic Research Working Paper Series
VL - No. 11886
PY - 2005
Y2 - December 2005
DO - 10.3386/w11886
UR - http://www.nber.org/papers/w11886
L1 - http://www.nber.org/papers/w11886.pdf
N1 - Author contact info:
Lucian A. Bebchuk
Harvard Law School
1545 Massachusetts Avenue
Cambridge, MA 02138
Tel: 617/495-3138
Fax: 617/812-0554
E-Mail: bebchuk@law.harvard.edu
Yaniv Grinstein
Johnson Graduate School of Management
Cornell University
371 Sage Hall
Ithaca, NY 14853
Tel: 607/255-257-6201
E-Mail: yg33@cornell.edu
AB - We study the extent to which decisions to expand firm size are associated with increases in subsequent CEO compensation. Controlling for past stock performance, we find a positive correlation between CEO compensation and the CEO's past decisions to increase firm size. This correlation is economically meaningful; for example, other things being equal, CEOs who in the preceding three years were in the top quartile in terms of expanding by increasing the number of shares outstanding receive compensation that is higher by one-third than the compensation of CEOs belonging to the bottom quartile. We also find that stock returns are correlated with subsequent CEO pay only to the extent that they contribute to expanding firm size; only the component of past stock returns not distributed as dividends is correlated with subsequent CEO pay. Finally, we find an asymmetry between increases and decreases in size: while increases in firm size are followed by higher CEO pay, decreases in firm size are not followed by reduction in such pay. The association we find between CEOs' compensation and firm-expanding decisions undertaken earlier during their service could provide CEOs with incentives to expand firm size.
ER -